U.K. 4G Auction Nets Underwhelming £2.34 Billion Sale Price

Sale is a third less than cash-strapped government expected, but increase in 4G services will help build a base for future digital industries, say pleased business groups.

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U.K. mobile broadband users might soon be getting faster and better coverage via new 4G and LTE services. The possible downside: their cash-strapped government is getting a lot less money out of the process than hoped for.

Last month the U.K.'s telecoms regulator, Ofcom, opened the bidding for the next chunk of government-owned radio spectrum for those players who want to start adding 4G to their product offerings.

That auction has now concluded, after some 50 rounds of intensive behind-closed-doors bidding, and the state can add several billion pounds to its coffers to help repair broken national finances. Unfortunately, the check is for only £2.34 billion ($3.58 billion) -- or just 67% of the previously anticipated target of £3.5 billion ($5.3 billion), according to the Office for Budget Responsibility, a special body set up to act as an honest broker for government finance predictions.

The shortfall is being used by political opponents of Chancellor George Osborne as more evidence of his allegedly shaky grasp of national economic control and over-optimism, with one left-of-center publication, New Statesman, claiming he forecast the higher anticipated 4G sale price to make the nation's economic recovery progress seem rosier than it actually is.

Politics aside, the low 4G sale figure is a sharp reminder of changing times; the last such sale, for third-generation spectrum in 2000, raised £22 billion ($37 billion).

The winners of the latest sale are Everything Everywhere (EE), Hutchison 3G U.K., an arm of U.K. telco giant BT called Niche Spectrum Ventures, Telefonica and Vodafone. Vodafone made the highest individual bid, of £791 million ($1.2 billion). These firms are now free to either extend their offerings -- EE already had launched a 4G service in late 2012 -- or launch new services for content downloading and quicker mobile broadband for Brits.

Ofcom on Wednesday told the BBC that the aim of the sale was not to bring in as much cash as possible for the British Exchequer but to "ensure a valuable economic resource was brought into productive commercial use." It claims 4G could deliver around £20 billion ($31 billion) of "benefits" to the U.K. mobile consumer base by 2023: "The U.K.'s communications networks will become more advanced as 4G is rolled out over the coming months. This new infrastructure, together with software development, employment opportunities and new mobile revenues, means 4G is likely to make a significant contribution to U.K. economic growth." Some government claims more than double that, to about $70 billion, seeing the extension of mobile broadband capacity as a possible key enabler of future digital industries.

Some groups outside government agreed that the sale portends a brighter economic future. "Digital networks are as vital today to growing the economy as road and rail links," said Rhian Kelly, director for business environment at The Confederation of British Industry, an employer group for U.K. businesses. "Faster connections will drive private investment, underpin jobs, spark innovation, particularly with small firms. Globalisation means firms are increasingly ruthless in choosing where to base their operations, so the rollout of 4G services will be key to attracting inward investment as well as winning business overseas," he said.

The group also points to 2012 research from Capital Economics and 4G supplier EE that claims 4G services could "unleash" £5.5 billion ($8.4 billion) in private investment over three years, support 125,000 jobs and, in the long term, increase U.K. GDP by 0.5% per annum.

In the meantime consumers could see 4G help end the U.K.'s notorious problem of poor and inconsistent cell coverage -- the issue of 'not spots'. Ofcom promises that 4G will cover 98% of the U.K. population and help deliver signal and presumably new services to more customers, although that level of coverage won't be delivered until the end of 2017.

Its next step: conduct nationwide research around December 2013 on what 4G speeds customers are actually getting, with a plan to publish the results in spring 2014.

U.K. analyst firm Ovum believes the low price paid will actually help ensure better coverage long term. "For [operators], the fact they didn't have to pay billions more is without doubt a positive thing," said Ovum telecoms regulation analyst Matthew Howett. "The costs of rolling out a network are significant. It could be argued that the relatively poor 3G coverage we have seen in the U.K. up until now is at least partially a result of operators being [so] left out of pocket after the last auction that they had very little to actually spend on building the network."

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